/ 13 December 2019

Cosatu suggests an Eskom solution

Eskom’s power stations are major contributors to both greenhouse gas emissions and toxic air pollution.
With two units at Koeberg nuclear power station likely to be out of commission at the same time, Eskom will struggle to keep the lights on, said Electricity Minister Kgosientsho Ramokgopa.



We all know that Eskom needs a Big Fix before it drags the whole economy down with it, but we also know that there is a strong narrative which says government is constrained by organised labour.

So it will come as something of a surprise to learn that trade union federation and ruling alliance member, Cosatu has tabled an ambitious and bold rescue plan to keep the country creditworthy and out of the hands of the International Monetary Fund (IMF).

The plan calls for the custodian of the pension savings of state employees, the Public Investment Corporation (PIC), to invest R200-billion into Eskom as part of a R250-billion equity injection to reduce its runaway interest bill and to return it to fiscal sustainability.

Eskom has said that it needs its debt to be reduced by from R450-billion to R200-billion for it to function as an entity which can pay its own way. The proposal by Cosatu is for the remaining R50-billion to be made up by development finance institutions such as the Development Bank of SA, Industrial Development Corporation and the Unemployment Insurance Fund (UIF).

The PIC, which has assets under management of R1.8-trillion, holds R104-billion of Eskom’s debt, R95-billion on behalf of the Government Employees Pension Fund (GEPF) and R9-billion for the UIF. Under the Cosatu plan the PIC debt would be converted to equity plus require a further investment of about R100-billion to reach the R200-billion mark.

A document, dated November 11/12 and titled Cosatu key economic intervention proposals, which was tabled at the alliance political council, a forum for the ANC, SACP and Cosatu alliance, calls for an urgent turnaround plan for Eskom as part of a social compact where there will be no privatisation and no retrenchments.

It is understood though, that what is envisaged is that workers who lose their jobs as Eskom is restructured, will be offered jobs after a skills audit in the public sector where there is currently a shortage of some 128 000 workers.

Public Enterprises Minister Pravin Gordhan has previously said you don’t fire 16 000 Eskom employees, suggesting perhaps that this was the number of jobs at threat should restructuring take place.

“The state is fast running out of options,” the Cosatu document says. “Eskom with a debt of R450-billion and rising is the ticking time bomb threatening to implode the state and economy.”

“We don’t have time. An SAA implosion we can manage, but not Eskom,” an insider said, explaining that financial collapse could mean the “other option”, the country entering an IMF programme where loss-making entities are closed and wages are slashed by perhaps 30%, causing an economic depression.

Cosatu wants action against the corrupt. Although some progress has been made to tackle corruption, it says, “very few have actually been arrested. Ten percent of the budget is still lost on average to corruption and wasteful expenditure. Tax revenues are declining.

“The MTBPS [medium-term budget policy statement] presented no plans to deal with these crises. Moody’s will downgrade South Africa in February if no plans to deal with Eskom and grow the economy are presented. Workers are and will bear the brunt of the consequences of a collapse of Eskom, the state enterprises, the state and economy,” the document says.

“In short we have three months to find a plan.”

The three months references the pending February budget which is widely seen as the country’s last-chance to avoid being junked. “Failure to have a credible plan to save Eskom by the budget speech will result in South Africa being downgraded,” Cosatu says.

It is involved in two high-level processes to find a fix for Eskom, one in the National Economic Development and Labour Council (Nedlac) and the other with its alliance partners. It is understood that there have been meetings with President Cyril Ramaphosa in the past few weeks and that he is “quite keen” on the plan.

The discussions include treasury and public enterprises, these departments being tasked with putting numbers to the broad plan. “We have agreement in principle. [Now] we need to get to the numbers,” a source said.

The document says “given the potential collapse of Eskom, state enterprises and the state as well as the weakness of the economy, Cosatu is in a unique position of strength to negotiate key demands, for example, that state enterprises and government do not retrench workers or privatise, that a stimulus plan be implemented [and] funds be shifted towards industrialisation.”

Cosatu’s proposal is in part based on the social compact used to rescue retail group Edcon where UIF funds were invested on the basis that the loss of Edcon jobs would cause the UIF to have to fund more unemployment claims.

“Labour’s key tool are workers’ funds, namely the PIC and UIF. If used strategically, then can play a decisive role in workers’ favour,” Cosatu’s document says.

Some will undoubtedly see Cosatu pressuring the GEPF/PIC to invest in Eskom as an unacceptable intervention by a powerful labour federation in its investment decisions, but they could well ask if this route is not taken, what would be the value of the PIC’s investments if Eskom tanks and takes the rest of the economy down with it?

The Cosatu document sees a two-stage process: “First an agreement on areas needing interventions. Second a process to find agreements on those interventions. These should yield a social compact involving government, business and labour in time for the February budget speech.

A key point highlighted by Cosatu is that a Just Transition plan must be developed and implemented for workers at power stations and coal mines reaching the end of their life spans, as well as their host communities, in particular Mpumalanga, Limpopo and the Eastern Cape.

“Targeted public and private investments must be made to produce renewable energy technology locally and in particular in those three provinces and targeting workers whose jobs are at risk,” the plan says.

“We don’t want workers to be unemployed as a consequence of the transition,” the insider explained, adding “nobody really wants to be a mine worker”.

PIC board chair Reuel Khoza is cautious about using GEPF funds to rescue Eskom. “Throwing money to the Eskom problem without addressing the key challenges and understanding whence its problems come from would not be good. Certain things keep being done wrong at Eskom. Public servants would be very cautious and ask many questions if we throw good money after bad into Eskom,” Khoza told Business Maverick.

More than tough love needed

Cosatu’s economic intervention proposals see the need for focused and tough action to secure Eskom’s turnaround, including:

• A comprehensive public audit of all Eskom contracts and expenditure, including coal supply and Independent Power Producer (IPP) contracts;

• The arrest and seizure of the assets of those who looted;

• Those who mismanaged must be dismissed and held personally financially liable;

• Coal suppliers and IPP generation contractors must be forced to reduce their prices or have their contracts cancelled and assets expropriated;

• Eskom’s mandate must be extended by the minister to allow it to expand its own renewable energy generation capacity;

• A proper staff audit must be conducted to determine if and where Eskom is bloated;

• Reskilling and redeployment programmes must then be embarked on with labour and the public service co-ordinating bargaining council where excess staff can be redeployed within Eskom as well as to municipal electricity departments and the broader public service and sector;

• No worker must be retrenched;

• Bloated management and perks must be slashed; and

• Worker and community owned generation capacity must be increased, in particular targeting coal workers and communities.